An arts funding freeze by the Government could hit the future of the Baltic, officials fear.

Gateshead's centre for contemporary art, which opened in 2002, benefits from Lottery money, previously only given for capital projects, in that it was awarded an annuity to support it for its first five years.

This sum, put at £7.5m last night by Baltic's acting director Andrew Lovett, is due to run out in 2007-08, by which time it will need to have alternative cash arrangements in place.

Last night Mr Lovett said: "That's the crunch time for us."

Baltic's strategy, he explained, was to build up an alternative fund with the help of the Arts Council, which has already awarded it £815,000 for 2005-06, a 75% increase on the previous year.

"If there is anything that is going to reduce the Arts Council's ability to help us to bring that to fruition, that is potentially difficult for us," said Mr Lovett.

After years of cash increases, the Government announced on Monday its grant to the Arts Council would be frozen.